Wednesday, May 20, 2009

Senate Approves Credit-Card Bill of Rights

By Jeff Plungis

May 19 (Bloomberg) -- A credit-card “bill of rights” that would curb fees and limit contract changes won approval from the U.S. Senate, as lawmakers pledged to restore “balance” between consumers and companies.

The Senate’s 90-5 vote sends the bill to the House of Representatives, which approved a similar measure last month. The House may give final approval as soon as tomorrow. President Barack Obama said he’d like to sign a bill into law by the May 25 Memorial Day holiday.

The Senate legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as “universal default.”

Senators said they had been flooded by complaints from constituents with clean payment histories whose rates were increased or borrowing limits were slashed.

“The statistics are just overwhelming about what’s happening to people,” said Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. “It needed to change. This bill tries to bring a sense of balance back.”

General Electric Co. Chief Executive Officer Jeffrey Immelt told investors at a conference in Florida today that the legislation wound up as “equal to or better than what our expectation was.” GE is the biggest private-label credit card issuer in the U.S.

Banks will be prevented under the legislation from pricing for risk, Edward Yingling, president and chief executive officer of the American Bankers Association, said in a statement.

“What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky,” Yingling said. “It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate.”

Most credit-card stocks fell. Bank of America dropped 48 cents to $11.25 in New York Stock Exchange composite trading at 4:15 p.m., a 4 percent decline. JPMorgan was off $1.45, or 3.9 percent, to $35.81. MasterCard Inc. lost $6.67, or 3.9 percent, to $166.73, and Visa Inc. declined $1.61, or 2.4 percent, to $64.80.